Some New Evidence on the Role of Collateral: Lazy Banks or Diligent Banks?
In the banking literature (Manove et al. (2001)) "Lazy Banks" are defined as those banks that substitute project screening with collateral. This paper aims to test for Italy some empirical implications of the theoretical model of "Lazy Banks": the negative relationship between collateral and project screening, whether collateral is posted by safer borrowers and law enforcement is able to increase the degree of collateralization. Empirical evidence presented here suggests that, both for long-term loans and short-term ones, when project screening increases, the amount of real guarantees with respect to the credit granted increases. Moreover, the data show that collateral seems to be posted by high-risk borrowers and law enforcement does not matter in explaining the presence of real guarantees for long-term loans, whereas it represents a further risk component that generates an increase in collateral for short-term loans. Therefore, a model of "Lazy Banks" does not seem to be verified on the data, suggesting the results rather a sort of "diligence" in the banks' behavior. Furthermore, the empirical findings on our data reveal that the presence of real guarantees is not able to lower ex-post default credit risk. These results are consistent with a view of collateral as a credible mechanism for commitment against informative asymmetries and not as a convenient hedge against realized ex-post credit default risk.
|Date of creation:||Jul 2009|
|Contact details of provider:|| Postal: Via Cesare Balbo 16, Roma|
Web page: http://www.istat.it/en/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rajan, Raghuram & Winton, Andrew, 1995. " Covenants and Collateral as Incentives to Monitor," Journal of Finance, American Finance Association, vol. 50(4), pages 1113-1146, September.
- Coco, G., 1998.
"On the Use of Collateral,"
9805, Exeter University, Department of Economics.
- Emilia Bonaccorsi Di Patti & Giovanni Dell'Ariccia, 2003.
"Bank competition and firm creation,"
Temi di discussione (Economic working papers)
481, Bank of Italy, Economic Research and International Relations Area.
- Emilia Bonaccorsi di Patti & Giovanni Dell & Ariccia#x2019, 2000. "Bank Competition and Firm Creation," Center for Financial Institutions Working Papers 00-20, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Emilia Bonaccorsi di Patti & Giovanni Dell'Ariccia, 2000. "Bank competition and firm creation," Proceedings 680, Federal Reserve Bank of Chicago.
- Giovanni Dell'Ariccia, 2001. "Bank Competition and Firm Creation," IMF Working Papers 01/21, International Monetary Fund.
- Arito Ono & Iichiro Uesugi, 2005. "The Role of Collateral and Personal Guarantees in Relationship Lending: Evidence from Japan's Small Business Loan Market," Discussion papers 05027, Research Institute of Economy, Trade and Industry (RIETI).
- repec:hrv:faseco:30728041 is not listed on IDEAS
- Besanko, David & Thakor, Anjan V, 1987. "Collateral and Rationing: Sorting Equilibria in Monopolistic and Competitive Credit Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 671-689, October.
- Yuk-Shee Chan & Anjan V. Thakor, 2004.
"Collateral and Competitive Equilibria with Moral Hazard and Private Information,"
- Chan, Yuk-Shee & Thakor, Anjan V, 1987. " Collateral and Competitive Equilibria with Moral Hazard and Private Information," Journal of Finance, American Finance Association, vol. 42(2), pages 345-363, June.
- Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
- Coco, Giuseppe, 1999.
"Collateral, heterogeneity in risk attitude and the credit market equilibrium,"
European Economic Review,
Elsevier, vol. 43(3), pages 559-574, March.
- Coco, Guiseppe, 1997. "Collateral, Heterogeneity in Risk Attitude and the Credit Market Equilibrium," Discussion Papers 9702, Exeter University, Department of Economics.
- Pietro Alessandrini & Andrea F. Presbitero & Alberto Zazzaro, 2009. "Banks, Distances and Firms' Financing Constraints," Review of Finance, European Finance Association, vol. 13(2), pages 261-307.
- Manove, Michael & Padilla, A Jorge & Pagano, Marco, 2001. "Collateral versus Project Screening: A Model of Lazy Banks," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 726-744, Winter.
- Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, "undated".
"Legal Determinants of External Finance,"
19443, Harvard University OpenScholar.
- Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Harvard Institute of Economic Research Working Papers 1788, Harvard - Institute of Economic Research.
- Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," NBER Working Papers 5879, National Bureau of Economic Research, Inc.
- RAFAEL LaPORTA & FLORENCIO LOPEZ-de-SILANES & ANDREI SHLEIFER & ROBERT W. VISHNY, "undated". "Legal Determinants of External Finance,"," CRSP working papers 324, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
- Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-381, July.
- Régis Blazy & Laurent Weill, 2006.
"Why Do Banks Ask for Collateral and Which Ones ?,"
Working Papers of LaRGE Research Center
2006-03, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
- Brick, Ivan E. & Palia, Darius, 2007. "Evidence of jointness in the terms of relationship lending," Journal of Financial Intermediation, Elsevier, vol. 16(3), pages 452-476, July.
- Allen N. Berger & Gregory F. Udell, 1988.
"Collateral, loan quality, and bank risk,"
Finance and Economics Discussion Series
51, Board of Governors of the Federal Reserve System (U.S.).
- Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-855, September.
- Gabriel Jiménez & Vicente Salas & Jesús Saurina, 2004.
"Determinants of collateral,"
0420, Banco de España;Working Papers Homepage.
- Pozzolo, Alberto Franco, 2004.
"The Role of Guarantees in Bank Lending,"
Economics & Statistics Discussion Papers
esdp04021, University of Molise, Dept. EGSeI.
- Booth, James R. & Booth, Lena Chua, 2006. "Loan Collateral Decisions and Corporate Borrowing Costs," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(1), pages 67-90, February.
When requesting a correction, please mention this item's handle: RePEc:isa:wpaper:113. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Stefania Rossetti)
If references are entirely missing, you can add them using this form.